Average Yearly Depreciation

Date: 06/07/2002 at 12:49:09
From: Chris
Subject: word problem on depreciation values
I'm trying to figure out the model pricing on a Chevrolet Sport
Utility Vechicle showing its depreciation rate in value per year.
I've obtained the price history for the last years as follows:
YEAR Kelly Blue Book Price History
1992 9,380
1993 10,430
1994 11,630
1995 12,960
1996 14,795
1997 16,715
1998 18,685
1999 20,840
2000 25,750
2001 28,710
2002 No listing yet
The 2002 Suburban is currently selling for the retail price of
$35,888.
I tried subtracting each number from the largest number and then I
divided by 11 (the number of years) to get an average of $1,757.36.
When I tried to graph it to show a decrease instead it showed an
increase.
What's the formula to be able to find out the average decrease in
value per year? I need help to point me in the right direction.

Date: 06/07/2002 at 14:12:42
From: Doctor Ian
Subject: Re: word problem on depreciation values
Hi Chris,
Instead of subtracting each number from the largest number, you
need to subtract each one from the number that comes just before
it.
But it's not clear that average decrease, in absolute terms, is
what you want. In the table below, 'price' is the price in a
particular year; 'diff' is the price difference from the previous
year; and 'pct' is the percentage drop in price from the previous
year:
year price diff pct
1992 9,380 1050 10.07%
1993 10,430 1200 10.32%
1994 11,630 1330 10.26%
1995 12,960 2015 13.46%
1996 14,975 1740 10.41%
1997 16,715 1970 10.54%
1998 18,685 2155 10.34%
1999 20,840 4910 19.07%
2000 25,750 2960 10.31%
2001 28,710 - -
It looks like 10% per year is a pretty good rule of thumb for
this model.
Does this help?
- Doctor Ian, The Math Forum
http://mathforum.org/dr.math/